Rejoice, India has broken into the trillion-dollar club of economies a year early. With the gross domestic product growing at around 9 per cent in 2006-07, the economy should have swollen to $ 900 billion now, and coasted to $ 1 trillion by the end of this fiscal year if the momentum was sustained. What helped bring this milestone forward was the gravity-defying rupee, which is trading at less than 41 to a dollar now, having climbed 8.4 per cent this year and 15.4 per cent from 47.04 last July. There is another piece of good news couched in these numbers. With a per capita income of $ 892, India has now moved into the World Bank’s classification of a lower middle-income country ($ 876-$ 3,465).
But here is the irony. India hurtled through the $ 1 trillion landmark propelled by forces the government is trying to contain: inflation and an appreciating currency. The Reserve Bank of India, which is now furiously fighting inflationary fires, has recently had to ease off on a long-standing policy of keeping the rupee artificially low. The avalanche of dollars feeding India’s $ 944 billion stock market severely limits the central bank’s ability to suck out greenbacks sloshing around in the system. A downside for the rupee seems remote as the central bank takes the axe to domestic liquidity — on the question of buying more rupees or more dollars, the RBI’s choice is clear. And the psychological prop of a $ 1 trillion economy could feed the dollar tide, warned Credit Suisse, the investment bank that brought the milestone to the notice of the investing globe.
Although the Credit Suisse methodology for arriving at the GDP number is questionable, it does not take away from the fact that the Indian economy is barreling along at a pace rarely encountered in history. If the government succeeds in slowing it down, it should still have enough momentum to get itself a permanent membership of the trillion-dollar club any time before next April. Growth would have to more than halve as would inflation, and the rupee would need to take a steep dive for India not to get there. A tall order, if not an impossible one.
India’s coming-of-age story is remarkable. At the current exchange rate, its economy was a puny $ 34.26 billion in 1950-51, which crawled its way up to $ 171.18 billion in 40 years. In the 16 years since India began reforming its economy, GDP has galloped towards the $ 1 trillion landmark despite political misgivings, some of which have resurfaced now. The challenge is to make India’s phenomenal growth story more inclusive. Chances are skittish governments might be tempted to temper it if the political bill for overheating becomes unpayable.